China supply concerns and Brazil woes send iron ore price soaring

A significant reduction in iron ore stockpiles in China and the ongoing fallout from a Brazil mine disaster has pushed Australia’s biggest export earner to $US110 per tonne, for the first time in more than five years.

The climbing price pushed shares in the country’s big three iron ore producers, Rio Tinto, BHP and Fortescue Metals Group higher, continuing their stellar run on the Australian stockmarket.

BHP shares closed up 1.9 per cent at $40.30, while shares in Rio rose 3.4 per cent to close at $105.34.

Iron ore pureplay Fortescue, which tends to rise the most in response to higher iron ore prices because it doesn’t produce other commodities, rose 5.4 per cent to close at $8.80.

Fortescue is up almost 130 per cent since the end of last year, while BHP (up 23 per cent) and Rio (up 39 per cent) are also up strongly this year.

China is the world’s biggest consumer of iron ore, the key steelmaking commodity, and a fall in the amount of iron ore held at Chinese ports helped lift an industry benchmark price up 3.5 per cent to $US110.20 on Thursday.

Commodity experts believe that reports of difficulties faced by Chinese buyers in procuring Australian iron ore was another factor in price surge.

The benchmark price for a tonne of iron ore delivered to China is up about 46 per cent since a devastating dam collapse in January in Brazil killed more than 240 people, and derailed the world’s biggest iron ore producer Vale.

As a consequence, Vale mines that produce about 93 million tonnes per year of iron ore are currently out of production. This represents almost a quarter of Vale’s typical annual production, and is equal to about 6 per cent of the total seaborne iron ore market each year.

“When you have a market that’s already reeling from Vale being away from the market…then any supply disruption or any hint of any supply disruption on top of that causes a fair bit of market jitters,” said Vivek Dhar, mining and energy commodities strategist at Commonwealth Bank.

“That hit on supply is significant, and that really explains why Chinese port stockpiles are falling as quickly as they are,” Mr Dhar said, of the 93 million tonnes of production currently offline.
Source: TheAge